Citation: 2010 TCC 213
Date: 20100503
Docket: 2009-2836(IT)I
BETWEEN:
ROBERT DESLAURIERS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Hogan J.
INTRODUCTION
[1]
This is an
appeal from a reassessment
made by the Minister of National Revenue (the Minister) in respect of the 2002
taxation year.
[2]
On
March 27, 2003, the Minister issued in respect of the Appellant a
notice of assessment for the 2002 taxation year. In the reassessment for the
year in question dated October 4, 2007, the Minister added $19,025 as
a shareholder benefit to the Appellant's income, and imposed a penalty of
$2,116 under subsection 163(2) of the Income Tax Act (ITA).
[3]
The Court
must decide:
(a)
whether the
Minister could issue a reassessment after the normal assessment period,
(b)
whether the
Minister was correct in adding $19,025 as a shareholder benefit to the
Appellant's income for the 2002 taxation year, and
(c)
whether the
Minister was correct in applying a penalty of $2,116 to the unreported income
in accordance with subsection 163(2) of the ITA.
[4]
In making
the reassessment and imposing the penalty in respect of the 2002 taxation year,
the Minister relied on the following facts set out in the Reply to the Notice
of Appeal:
[Translation]
(a)
In his income tax return for
the 2002 taxation year, the Appellant reported $15,600 in employment income
from Équipements de Bureau de Sherbrooke Inc. (EBS).
(b)
During the period at issue,
the Appellant was a shareholder, director and manager of EBS, whose primary
activity was the sale and leasing of office equipment as well as the production
of photocopies.
(c)
EBS, which was incorporated
on December 22, 1993, has been inactive since 2005.
(d)
Its share capital is divided
as follows: the Appellant has 44%, Claude Robichaud has 22% and Les Immeubles
Rocendel Inc. has 22%.
(e)
Following an audit, the
auditor noted that EBS had issued two cheques to 9121‑3982 Québec Inc.,
operated under the corporate name Matériaux et Équipements [sic] M.P.
Inc., for a supposed purchase of photocopy machines.
(f)
The cheques for $8,051.75
and $10,973.39, dated November 6, 2002, and
December 5, 2002, respectively were signed by the Appellant.
(g)
The facts collected by the
auditor demonstrated that Matériaux et Équipement M.P. Inc. had no real
commercial activity and that its shareholder, Marc Prince, issued accommodation
invoices.
·
Mr. Prince confirmed that no
services were offered by his company.
·
The cheques were cashed at a
cheque-cashing centre called Agence Arylo.
·
He received a commission of
$300 to $500 per cheque cashed.
(h)
The Appellant refused to
provide the auditor with the books, records and supporting documents concerning
EBS for the year audited.
(i)
In or about June 2007,
a reassessment was issued to EBS for the 2002 taxation year disallowing the
expense related to the purchase of photocopy machines.
(j)
The auditor was unable to
verify the Appellant's bank accounts because he refused to submit his
statements as well as the bank authorization required.
[5]
Kenneth
Eryou, an auditor with the Canada Revenue Agency, was the only person to
testify for the Respondent. The auditor testified that at the start of 2006 one of his
colleagues had mentioned to him that the company Matériaux et Équipement M.P.
inc. (M.P. inc.) had provided a series of false invoices to various companies
including Équipements de Bureau de Sherbrooke inc. (EBS). The president of M.P.
inc. received cheques in exchange for false invoices and cashed them at the
cheque-cashing centre Agence Arylo, for a commission of $300 to $500 per
cheque. He then gave the amount received,
minus commission, to the representative of the company that had given him the
cheque in question. A photocopy of the two
cheques issued by EBS to M.P. inc. was made by Agence Arylo before they were
cashed. Photocopies of the front of those two
cheques were filed as Exhibit I-15. The
cheques were signed with the Appellant's name.
[6]
The auditor
said that he had visited only the place indicated as M.P. inc.'s place of
business. He noted that it was a dwelling unsuitable for the operation of a
business. The audits enabled the auditor to conclude that M.P. inc.
did not carry on any commercial activity other than drawing up false invoices
in exchange for commission.
[7]
The auditor
concluded that EBS had not bought any photocopy machines from M.P. inc.
Following the audit, he issued a reassessment regarding EBS, disallowing an
expense deduction in the amount of $19,025.
[8]
The auditor
audited the directors and shareholders of EBS. He contacted Claude
Robichaud, a large shareholder in EBS; the Appellant; and Pascal Paré, the
company's accountant. After contacting
Mr. Robichaud, the auditor concluded that the Appellant managed EBS's
daily operations alone and that Mr. Robichaud was rather a passive shareholder.
He claims that the Appellant was uncooperative during
the audit and that that lack of cooperation led him to infer that the Appellant
had something to hide. In addition, since the
Appellant's name was on the two cheques in question, the auditor concluded that
Mr. Prince gave the Appellant the cash he received when he cashed the cheques,
minus his commission. The Appellant then used
that money for his personal expenses.
[9]
The
Appellant presented an entirely different version of events. He testified
that it was Mr. Robichaud who had contacted him to persuade him to start
together a business specializing in sale, maintenance and repair of photocopy
machines in the Estrie region. At that time, the
Appellant worked as a sales representative for Canon in the Estrie region.
According to the Appellant, Mr. Robichaud owned a
shopping centre in Fleurimont near Sherbrooke. There was an unoccupied space at the
shopping centre, which EBS leased as its primary place of business. The Appellant indicated that Mr. Robichaud had
appointed himself president of EBS in its corporate charter and appointed the
Appellant secretary without his knowledge. According
to the Appellant, in 2002, Mr. Robichaud held 33.01% of the common shares
in EBS. The Appellant held 42.72% of them.
However, according to the Appellant,
Mr. Robichaud controlled EBS and had the right to do so since he managed
Les Immeubles Rocendel inc. (Immeubles Rocendel), which held 15.53% of the
common shares in EBS. Therefore,
Mr. Robichaud directly and indirectly controlled 48.54% of the common
shares in EBS. Mr. Robichaud also
allegedly required that EBS hire his accountant, Mr. Paré. According to the Appellant, Mr. Paré was very close to
his uncle, Mr. Robichaud, and was the accountant for all his other
companies.
[10]
The
Appellant testified that Mr. Paré came to EBS's place of business every
two weeks and took with him all the accounting records. According to the
Appellant, all the company's books of account were kept by Mr. Robichaud
or by Mr. Paré at EBS's head office at 1996 Prospect Street in Sherbrooke, where Mr. Paré's and
Mr. Robichaud's offices were also located.
[11]
The
Appellant testified that he had explained to the auditor that EBS's accounting
records were not in his possession and that he had only the documents that he
had provided to the auditor when they met. The Appellant sent a photocopy of
his letters to the two shareholders of EBS, to Immeubles Rocendel and to its
managing director, Mr. Robichaud, as well as to their spouses, where
applicable, and to the accountant, Mr. Paré.
[12]
In his
testimony, the Appellant indicated that Mr. Robichaud made all EBS's
decisions. In regard to the management of the company, he stated that
Mr. Robichaud decided alone who EBS would hire and determined the
conditions of employment and job descriptions of EBS employees. The Appellant testified that he could not sign EBS's
cheques without Mr. Robichaud's approval. If the
Appellant had to sign cheques, they were prepared by the accountant on
Mr. Robichaud's instructions. The
Appellant filed as Exhibit A-1 a letter to the National Bank of Canada signed by Mr. Robichaud informing
the bank that EBS had transferred all of its banking to the Caisse populaire
Desjardins de la Saint-François.
The Appellant alleges that the letter confirms that
Mr. Robichaud controlled EBS's financial operations. In cross‑examination, the Appellant stated that he
had not signed the cheques filed as Exhibit I‑15 and that the
signature on those cheques did not match his.
ANALYSIS
[13]
To
determine whether the Minister could legally issue a reassessment against the
Appellant, I must examine subparagraph 152(4)(a)(i) of the ITA, which
reads as follows:
(i) has made any misrepresentation that
is attributable to neglect, carelessness or wilful default or has committed any
fraud in filing the return or in supplying any information under this Act, or
[14]
This
provision allows the Minister to make a reassessment at any time after the normal
assessment period if the taxpayer has made a misrepresentation attributable to
neglect, carelessness or wilful default or committed fraud in filing his tax
return. In that respect, the burden is on the Respondent.
[15]
In my
opinion, the Respondent did not prove on the balance of probabilities that the
Minister could avail himself of the exception in subparagraph 152(4)(a)(i)
of the ITA. The Respondent did not call Mr. Prince as witness.
However, she tried to have him testify through
hearsay evidence. The auditor claims that
Mr. Prince cashed the cheques in question and that he issued accommodation
invoices in exchange for commission on the amounts of the cheques cashed.
That is what paragraph 7(g) of the Reply to the
Notice of Appeal states. However, we do not
know who gave Mr. Prince the cheques or to whom Mr. Prince gave the
amounts received from cashing the cheques. Was
it the Appellant, as the Minister presumes, Mr. Robichaud or someone else?
Although it is true that under the informal procedure
the judge has the power to admit hearsay evidence, I am of the opinion that
such evidence is inadmissible in this case because admitting it would deprive the
Appellant of his right to cross-examine Mr. Prince and to cast doubt on
his statements. Someone who claims to have
issued accommodation invoices merits being heard directly by the Court. Furthermore, the Respondent did not call Mr. Robichaud
or Mr. Paré as witnesses. Yet, the
auditor concluded that the Appellant was the manager of EBS by relying on the
conversations he had had with those two people. The
Appellant submitted an entirely different version of events alleging that
Mr. Robichaud managed EBS. The Appellant's
testimony is corroborated in part by the fact that EBS's head office is located
at the same address as Mr. Robichaud and Mr. Paré's offices. Exhibit A‑1 shows that Mr. Robichaud took
care of EBS's banking transactions. The Court
would have liked to hear Mr. Robichaud's testimony on his role in the
establishment and management of EBS. Consequently,
I do not believe that the evidence submitted warrants the conclusion that
conditions required to issue an assessment against the Appellant outside of the
normal assessment period were met in this case.
CONCLUSION
[16]
The appeal
is allowed, and the reassessment is vacated for the reasons stated above.
Signed at Ottawa, Canada, this 3rd day of May
2010.
"Robert J. Hogan"
on this 18th day
of November 2010
François Brunet,
Revisor
Email this Content